Key Takeaways
Tech isn’t in a bubble — but it is fully valued. Expect pullbacks to be more about digestion than destruction, with dip buyers still active.
Rotation is already underway. Small-caps and value-heavy equities tend to outperform coming out of Fed tightening cycles.
Income has the edge right now. High yield and preferreds offer attractive stability and returns as inflation cools and rate cuts approach.
The money supply is the missing piece. Hatfield argues the Fed’s contractionary stance virtually guarantees further disinflation and eventual easing.
AI is boosting more than software. Investment banks, select REITs, and private equity all stand to benefit from an AI-driven capital formation boom.
Dividend strategies smooth out volatility. ICAP’s selective call-writing and diversified positioning help buffer harsh NASDAQ down-days.
Markets are wrestling with a classic tension: the story investors want to believe versus the data that keeps pushing back. On a new episode of Lead-Lag Live, Melanie Schaffer sat down with Jay Hatfield, CEO of Infrastructure Capital Advisors, to break down what’s really driving the pullback, why tech is wobbling, and where the next wave of returns may come from.
This was one of Jay’s most wide-ranging conversations yet — covering everything from tech valuations and small-cap rotation to monetary contraction, AI’s second-order effects, and income strategies that actually make sense in a tightening-turned-loosening cycle.
Below is your full breakdown.
Tech Isn’t in a Bubble — It’s Just “Fully Valued”
Hatfield doesn’t buy the “tech bubble” narrative. Instead, he argues the mega-cap complex is simply priced to perfection. When earnings season ends and companies go quiet, short-sellers fill the vacuum with new reasons to knock down valuations — and with few positive catalysts in November, that’s enough to trigger a pullback.
He notes that his team had already expected a fade after the S&P approached their 6,940 target, a level driven largely by stretched tech multiples. Tesla, in his words, is still “wildly overvalued,” while other megacaps are just at the upper edge of reasonable pricing.
Is this the start of something deeper? Jay says no. Dip buyers in Silicon Valley are waiting. And with a 7,700 year-ahead target, investors who fully bail now risk missing the re-entry.
The Rotation Trade Is Real — And Small-Caps Benefit
Small-caps aren’t just an isolated asset class — they are part of the broader post-tightening rotation dynamic. When the Fed shifts from tightening to easing, flows typically move away from expensive tech and toward reasonably valued names in cyclical and value-heavy pockets of the market.
Hatfield expects:
Four Fed cuts in the next year (with or without the current chair).
Small-caps outperforming as capital rotates.
ICAP’s value-heavy approach to track more closely with the Dow and equal-weight S&P rather than the NASDAQ.
For those worried about timing, he emphasizes this isn’t a risk-off call — tech will still “do fine.” Small-caps just offer a better risk-adjusted entry point.
Why High Yield and Preferreds Shine in This Setup
If the 10-year heads toward 3.75% next year as Hatfield projects, then investors seeking stability and income should be leaning into the riskier corners of fixed income:
High-yield corporate bonds (BNDS)
Preferreds (PFFA)
Why riskier? Because once inflation cools and rate cuts begin, these segments offer:
Higher income potential
Lower volatility than equities
Long-term returns that tend to approximate coupons
True seniority over common stock
And on market-down days — like the “flush” selling seen lately — preferreds and high yield tend to hold up noticeably better than equities.
The Money Supply Problem: “Like Having a Pope Who Doesn’t Believe in Jesus”
Hatfield continues to be blunt about what he sees as the Fed’s biggest mistake: ignoring the money supply.
He argues:
The Fed shrank the monetary base by ~7% year-over-year.
It should have risen by roughly 5% to match nominal GDP.
This aggressive contraction ensures inflation will continue falling.
Rate cuts are all but inevitable — the timing is the only question.
He attributes much of today’s market confusion to the Fed’s refusal to acknowledge money-supply dynamics, noting that monetary theory proved correct during (and after) the pandemic stimulus boom.
A weaker labor report before the next meeting could force a cut, but his base case is still no move in December.
AI Isn’t Just a Tech Story — It’s a Capital Formation Story
One of Hatfield’s most compelling themes is that AI is creating a real-economy boom, not just a software one. That means:
More construction
More electricity demand
More data centers
More financing activity
More IPO and M&A flow
This is why ICAP has leaned into investment banks, certain office REITs, and now sees a major opportunity in private equity firms — which he believes have been unfairly discounted over exaggerated credit fears.
Where Dividend Strategies Fit Now
ICAP (the ETF) embodies the idea of not having all eggs in one basket. On brutal tech days, equal-weight S&P and dividend-rich strategies tend to show much flatter drawdowns. ICAP boosts income by writing short-duration calls only on fully valued stocks — a highly selective process that has helped the fund outperform comparable benchmarks.
Closing Thought
This market is messy, but not mysterious. Tech is expensive, small-caps are cheap, income is attractive, AI is reshaping capital formation, and the Fed is overdue for a policy reset.
For investors looking to position ahead of 2026 — rather than react to headlines — Hatfield’s roadmap is clear: blend reasonable equity exposure with high-yield, preferreds, and quality dividend strategies, and let the inevitable rotation work in your favor.
Lead-Lag Live is part of The Lead-Lag Report, where we spotlight conversations that cut through the noise — separating market fantasy from fundamental truth.
DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Infrastructure Capital and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
